Money | Peer to peer lending
According to research by Moneysupermarket.com one in four workers in Britain are using 40% or more of their wages to pay off debt. The total debts are more than £9 billion and the average payment is £322 per person each month. You may be able to consolidate debts with a loan from Zopa. If you have a good credit rating the interest rate from Zopa might be less than on your loans or credit card debt. Another option is to transfer credit card debt to a interest free card, a number of banks are doing good deals now and up to 20 months interest free. If you need help with debt try the Consumer Credit Counselling Service.
I started lending with Zopa last year and lent out £500 which has continued being lent out since February 2010 in chunks of £10 at a time. If someone doesn’t pay or pays a reduced amount, I have a diversified loan book. I have one paying a reduced amount and another in the Y (young) group who doesn’t appear to be paying anything hardly. If they both default, I still only lose £10 on each, at most. This is an extract from my recent email from Zopa:
Your average lending rate after fee on loans made…
in the last week is 5.60%
in the last month is 5.60%
since you joined is 7.87%
You have £0.49 currently on offer to borrowers
You have £40.00 of loans in processing
You have £8.01 in your holding account
I have recently reduced my interest rate and then increased it again. I reduced it to lend out that £40 but the Zone of possible agreement changed and meant I could raise the rate very slightly again. I did make a mistake a few weeks ago and made the rate for the Y (young) market too low at 7.5% and lent out to two more in that market. I think that market is risky with default rates of about 5% and so for the time being I have stopped lending to that market. It’s easy to adjust your interest rates and so if rates go down as they have done, you adjust your rates down to get your money lent out. When the Bank of England increases rates I can increase my rates very quickly. The average savings in the UK is about £3,000 for each household. If you save that with Zopa now you can get £168 in interest each year as well as introduction fees. I have had 2 introductions and so made £100 on top of my interest. If you put that in a bank at 3% you only get £90 on the same amount in interest.
To get over 3% with a bank you have to tie your money up, but with Zopa you can sell your loan book to someone else; except late payers and bad debts. I buy loans from other people needing their money through rapid return. It’s good for them and good for me because my money gets loaned and I make interest.
At the time of writing the fee for a loan has been reduced to £100 until the end of September 2011. If you want to become a lender, I would advise not putting all your money into Zopa although it’s fairly safe now; it’s not covered by the deposit compensation scheme like bank accounts. Banks are covered up to £85,000 but of course Zopa pays better. People are lending over £1 Million a week through Zopa, so that should be reassuring and that is in a recession. There is a band of interest rates in Zopa called the zone of possible agreement. If you want to lent say £3,000; I would select an interest rate at the lower end of that zone in the A* and A markets to get your money lent out quickly and to the people with the best credit ratings. You don’t have to lend to just any market, but it would probably be better to also lend to the ‘B’ market at a higher rate. The C market and Y markets are riskier but you can adjust for that with higher interest rates of around 9.5%. You will lend money out over the first month and so it will seem slow but after that you lend it out as you get it back in. I have lent out over £1,000 now in £10 chunks. Remember too that it’s compound interest and so you get interest on the interest and so it soon mounts up. Zopa also has FAQ’s and a forum if you have questions or you can ask me by using the comment box below. Why not check out Zopa for yourself? I make a £50 referral fee if you join!
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